- PageRank, Anchor Text and Proximity (algorithms) that made Google the best search engine are now near expiration.
- Google is a monopoly in search. It's longevity, Sustainability and Profitability are heavily reliant on search.
- This begs the question, could PageRank expiration hurt Google Search's market share and its stock price?
In November of 1997 in the paper,"The Anatomy of a Large-Scale Hypertextual Web Search Engine," Sergey Brin and Lawrence Page presented the first prototype of a large-scale search engine called Google. In this paper, Brin and Page elaborate on the three algorithms that would form the backbone of the world's dominant search engine: PageRank, Anchor Text and Proximity. Anchor Text and Proximity contributed to making Google Search unique but it was PageRank that made it revolutionary. PageRank brought order to the web. It was able to democratize search.
"PageRank treats a link from web page A to web page B as a “vote” by page A in favor of page B. The PageRank of a page is the sum of the pages that link to it. The PageRank of a web page also depends on the importance (or PageRank) of the other web pages casting the votes. Votes cast by important web pages with high PageRank weigh more heavily and are more influential in deciding the PageRank of pages on the web."
"The first version of the PageRank technology was created while Larry and Sergey attended Stanford University, which owns a patent to PageRank. The PageRank patent expires in 2017." Google Inc.'s 10K for fiscal year ended December 31st, 2009.
Reasons Investors Should Not be worried
Reasons Investors Should Be Worried
But if PageRank is a such a simple idea and people can develop better search algorithms, you would wonder why no search engine produces better results than Google? Why did Google extend its patent exclusivity from 2001 to 2011 if PageRank was so insignificant?
We believe that the idea of "democratizing" the web is an inherent feature of PageRank that other companies can use to improve search results relative to Google Search. This could have a negative impact on Google Search's dominance as search is the major driver of Google revenues.
Source: Alphabet/Google's 2015 10K
From Alphabet's recent 10-k and Google's Search revenues from Statista, you will realize that Search has been ~92%, ~90%, ~90% of total revenues in 2013-2015 respectively. Although there are many facets of Google Search, we wanted to highlight the significance of Search for Google and why the expiration of PageRank could be a big deal.
Another reason why this could negatively impact Google Search is because Google does not own hardware that is widely used e.g. smartphones or computers. That means if the biggest smartphone and computer makers develop an efficient search engine that closely mimics Google search, they can make their hardware work better with their search engines instead of using Google. For instance, Microsoft tries to promote Microsoft Edge on the Surface and Apple promotes Safari on the Mac. Players like Apple are trying to diversify their revenue streams from iPhones and search would not be a bad idea.
Lastly, we believe that investors will be less patient with Google's side projects should search revenues start to dwindle. One of the major reasons why Google can carry out a multitude of money-losing ventures without worrying investors is because it has been able to deliver. From the figures above, Search has played a huge role in Google's revenue growth. Despite the recent market turbulence, Google has a trailing twelve-month profit margin and operating margin of 21.80% and 25.82% respectively. They also have $71.93 billion in total cash. These numbers make investors less worried about money-losing ventures.
But if this changes, even slightly, investors might not be so patient and so tolerant with Google or Alphabets side projects.